Insurance intermediaries need to move away from “a product-push approach towards a more client-centric product build approach”, Andrew Coutts, the head of intermediated business at Santam, said in the insurer’s 2021 Barometer.
This, he said, was backed up by Santam’s research, which showed that the top three reasons commercial entities gave for using an intermediary were “understanding their needs”, “claims handling”, and “insurance knowledge/expertise”.
“Insurers and intermediaries must confront the reality that many of their clients, particularly in commercial businesses, will require a more nuanced insurance offering to effectively protect them in an increasingly complex risk environment.
“Much of the traditional role of the intermediary was to sell generic products that would transfer risk away from their clients. However, the escalation of risk exposure and complexity, coupled with affordability issues and cheaper alternative channel solutions, render a product-push-only business model by an intermediary uncompetitive.
“Where the risks are more straight-forward, the product has largely become a commodity that is easily distributed via technology-enabled direct channels. This all points to the urgent need for a shift in focus to remain relevant.”
Santam’s research found that the three key value-added services clients wanted from their intermediary and insurer were:
- information on how to reduce or better manage their risk
- detailed claims monitoring and what impact that activity will have on premiums in the following year and
- real-time SMS notifications when risk is heightened.
“These findings support the proposed evolution from insurance facilitator to professional risk adviser,” said Coutts.
He said the defining characteristic of a risk adviser was the ability to sense and respond to risk in real-time.
“In that vein, a good starting point for any intermediary would be to sit down with their clients at every policy renewal and ask the question, ‘What could happen next?’ What could the next black swan event be? Will the Eskom grid fail? Is there another severe drought around the corner? What if a hacker holds your business to ransom? Constantly exploring such scenarios will not only improve the suitability and affordability of cover, but also differentiate the intermediary as a trusted risk adviser.
“The next step is to monetise that advice so that intermediary’s revenue is not reliant on product sales alone and they are able to confidently embrace their new role.”
Coutts said another key deliverable for intermediaries who want to remain relevant is expert product knowledge.
“The contention around the pandemic-induced business interruption claims has highlighted the importance of understanding not only what is covered by a product, but also what the exclusions are, as well as the intention of the product at the time of sale.”
As a result of the pandemic, both the public and regulator will have an expectation that intermediaries have considered every potential risk exposure and aspect of cover to ensure they have provided their clients with sufficient protection, Coutts said. If another black swan event occurs, there will be an expectation that the intermediary offered optional non-damage cover extensions to match their client’s potential risk exposure. “If the intermediary is found not to have advised their client appropriately, they may find themselves liable for professional indemnity claims.”
Coutts said “the silent cyber risk” was a good example of a very real and widespread threat to which non-damage BI exclusions applied. For example, he said that a client without cyber cover who suffers a hack may try to claim against another part of the policy, such as the prevention of access extension under the BI section, resulting in resource-draining claims disputes.
“These types of scenarios around non-damage BI claims create a lot of complexity for intermediaries. It is therefore essential that intermediaries have strong product knowledge and keep a good record of advice which clearly states what is being sold and what the client understands is being sold.”
Some of the key findings of the 2021 Insurance Barometer are set out in the tables below:
| Top risks identified by consumers: 2020/21 vs 2019 | ||
| Type of risk | 2020/21 | 2019 |
| Respondents thought motor vehicle accidents were a major risk | 44% | 58% |
| Considered burglary / house-breaking a major risk | 43% | 56% |
| Hijacking | 27% | 32% |
| Rising crime | 27% | * n/a |
| Theft | 26% | 41% |
| Unemployment | 23% | n/a |
| Pandemics | 16% | n/a |
| Muggings / robbery | 15% | 20% |
| Accidental loss / damage | 14% | 5% |
| Theft / cloning bank cards | 10% | 21% |
* Did not previously feature
| Top risks identified by corporate and commercial entities: 2020/21 vs 2019 | ||
| Type of risk | 2020/21 | 2019 |
| Respondents identified theft as a major risk | 34% | 62% |
| Concerned that an economic downturn was a major risk | 34% | 18% |
| Listed fire as a major risk | 26% | 27% |
| Motor vehicle accidents | 21% | 28% |
| Business interruption | 17% | 6% |
| Pandemics | 17% | * n/a |
| Machine breakdown | 14% | * n/a |
| Loss of profits | 14% | 18% |
| Climate change | 13% | 14% |
| Public liability | 11% | 19% |
* Did not previously feature
| Intermediary forecasts and choices | ||
| ● | 81% of commercial intermediaries (and 63% of personal lines intermediaries) anticipate more consolidation of intermediary firms due to a difficult trading environment | |
| ● | 65% of intermediaries felt there was a need for insurers to show clients how claims behavior influences premiums | |
| ● | 71% say communication on policy coverage is “very/fairly clear”, 29% say it is confusing | |
| ● | 51% anticipate that increased regulation will make it difficult for small brokerages to survive | |
| ● | 31% of intermediaries said their choice of insurer was strongly influenced by good broker consultants that lend support | |
| ● | 28% predict that the industry will become more niched, focusing on specific types of clients | |
| ● | 26% said their choice of insurer was influenced by a reputable brand | |
| ● | 19% indicated that long-standing relationships influenced their choice of insurer | |
| How Covid-19 has impacted intermediaries | ||
| ● | 65% have recorded an increase in policy amendments / reduced cover etc. | |
| ● | 59% of intermediaries reported that the pandemic had a negative impact | |
| ● | 53% reported spending more time on admin and less on new business sales | |
| ● | 47% an increase in policy cancellations | |
| ● | 43% said they had experienced a loss in profits ( 22% average profit loss) | |
| ● | 37% set staff up to be able to work from home | |
| ● | 9% saw an increase in profits | |
| ● | 8% put staff on partial pay | |
| ● | 3% closed one or more offices / did not renew commercial leases, 3% closed down entirely for all, or most, of the duration of the pandemic | |
| ● | 2% retrenched staff | |
